The Securities and Exchange Commission asserted that a company and its many affiliates raised nearly $500 million through a Ponzi scheme, scamming their customers into giving them money and ripping them off in the process. The company filed for Chapter 11 bankruptcy, and a receiver was appointed to represent the company’s debtors. The receiver has filed suit against a bank for allegedly facilitating the Ponzi scheme.

The company was part of a Ponzi scheme founded by a gas and oil company. The scheme used later investor funds to pay high returns. Additionally, as schemes failed, funds were transferred from later investors to earlier investors in an attempt to placate earlier investors. These transfers were accomplished by commingling, insider “loans,” recycling assets in sham sales, and laundering assets through various entities in order to conceal the funding of earlier schemes and the extent of insider compensation. The defendant bank became aware of many objective manifestations of the scheme and nonetheless continued to substantially assist in the scheme. The bank assisted / materially aided the scheme by releasing funds from the escrow accounts, by falsely presenting itself as a safeguard in the PPMs, by serving as the company’s primary banker, by processing hundreds of internal transfers necessary to carry out the scheme, and by keeping material facts secret from investors, including but not limited to the fact that the bank was repeatedly and routinely breaching the escrow agreement. The bank disregarded many obvious red flags. The evidence adduced thus far shows that the bank acted with reckless disregard for the truth and the law in deciding to materially aid the company and its principals. Such material aid was carried out not only in the face of a perceived risk that its assistance would facilitate an untruthful and illegal activity by the company and its principals, but with the actual knowledge that it was performing the improper internal transfers, making the Ponzi payments, compensating the insiders, and, in short, effecting every transfer needed to carry out the scheme, all the while permitting itself to be held out as the safeguard of the investors as the escrow agent. In short, the bank clearly had far more than the requisite general awareness that its role was part of an overall activity that was improper. The expert is the receiver. He regularly serves as court-appointed receiver in actions by the SEC and other regulators.

1.) Should the bank have been aware of the Ponzi Scheme? 2.) Was the bank following the proper procedures and protocols for preventing fraud?

Bank Accused of Abetting Ponzi Scheme

In this case, the defendant attorney was asked to serve as a manager of a trust fund. The trustors had previously owned a large business, and had begun to sell many of the company’s assets at the time of the trust’s creation. In order to mitigate taxes so that the family could maximize their charitable donations and provide money for their children and grandchildren, the originators of the trust had an estate plan created with their attorney, who was given greater and greater control over the trust and its assets over the course of several years. Eventually, one of the trustees contacted another attorney friend regarding the original lawyer’s actions as manager and trustee, and the attorney ultimately convinced the plaintiffs that and the others involved in the estate plan (i.e. the estate planning attorney, insurance agents, etc.) created and administered the estate plan as as scam and scheme to steal the family’s money.

I have extensive experience with the "proper management of trusts" and I am very familiar with the concepts associated with breach of fiduciary duties. The defense has a great case, I would be happy to review this.

1. Are you familiar with the proper management of trusts? 2. Have you worked on similar cases in the past? 3. Are you familiar with a breach of fiduciary responsibilities?

Location: CA B.A., Cum Laude, Pomona College J.D., Hastings College of the Law, University of California L.L.M., Taxation, Golden State University of Law Fellow, America College of Trusts & Estates Member, The Alameda County Member, American Bar Associations Member, Tax and Trusts & Estates Law Section, The State Bar of California. Member, Taxation, Real Property, Probate & Trust Law Section, The American Bar Association Former C**** o* t** E***** P******* T**** & P****** L** A******* C********* Lead Consulting Editor, Numerous Trust & Wills Publications Author & Co-author, Numerous Books, Book Chapters & Articles Invited Lecturer & Presenter, Various Professional Conferences Former I********* U********* o* C********* B******* Current E***** P******* T**** & P****** A*******

This highly qualified expert is a California certified specialist in Estate Planning, Trust and Probate Law, as well as a California certified specialist in Taxation Law. His practice emphasizes estate planning, trust and probate administration, including dispute resolution, and taxation matters. He possesses particular expertise in counseling trustees administering living trusts, and in resolving disputes among beneficiaries and fiduciaries. He also serves as a mediator in trusts and estates disputes. He has received numerous awards including super Lawyers top 100 for 9 consecutive Years and is extensively published with numerous books, book chapters, and articles. This expert earned an L.L.M. in Taxation from the Golden Gate University of Law, his J.D. degree from Hastings College of the Law, University of California, and his B.A. degree, cum from Pomona College.

Lawyer Funnels Money Out of Trust Fund

 United States District Court, N.D. New York.July 22, 2010728 F.Supp.2d 130

: Plaintiffs commenced the instant action against Defendants claiming that they conspired among themselves to keep down the wages of registered nurses in the Albany area. Registered nurses, on behalf of themselves and all other similarly situated, brought class action against hospitals in the area claiming that they conspired among themselves to keep down the wages of registered nurses in the area, scamming their employees in order to earn more of a profit.

: Plaintiffs brought the expert witness Orley Ashenfelter. testify concerning anticompetitive effect, injury-in-fact, and damages. Ashenfelter “currently serves as the Joseph Douglas Green Professor of Economics at Princeton, where he specializes in labor economics, and was recently elected to serve as President of the American Economic Association.” 

 Plaintiffs’ Opposition Memo. at 3. He has previously served “as the director of the Office of Evaluation of the U.S. Department of Labor and had testified for the Federal Trade Commission in a variety of antitrust matters. Ashenfelter opined that “the fees that Defendants paid for agency nurses, when appropriately adjusted, were equal to or less than competitive staff nurse wages because in a competitive market employees were paid what they are worth. Ashenfelter selected agency nurses as a benchmark because they are used as a substitute for staff nurses in the workplace and their wages are not set by the Defendant hospitals.

Defendants challenge the reliability of Ashenfelter’s methodology arguing that it is inadmissible under 

Daubert v. Merrell Dow Pharmaceuticals, Inc.,

 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993), and should be excluded from consideration. The court reviewed the admissibility of the expert witness under the Rule 702 of FRE considered several factors and ruled the testimony as admissible.

Orley Ashenfelter used “standard economic tools to study whether staff nurses in this action suffered impact and damages as a result of Defendants’ alleged conspiracy. The expert used widely accepted economic concept, called marginal revenue product (MRP). MRP is the “value that an employee creates for his or her employer.” The concept promulgates that an employer will not “incur costs to employ a staff nurse or hire an agency nurse that, in total, exceed a nurses’ [MRP].” In other words, according to economic theory, Ashenfelter opines that because agency nurses “are interchangeable with staff nurses, working instead of, and alongside, staff nurses at the exact same hospitals performing the exact same tasks on the same day” the two types of nurses are worth the same to the hospitals.

: Defendants argue that Prof. Ashenfelter’s methodology is unreliable because: (1) it assumes that agency nurse rates are set in a national market; (2) it does not account for differences in experience; (3) it is based on the assumption that Defendants made extensive long term use of Agency nurses; (4) the but-for wages created by his methodology are not credible; (5) the but-for wages barely change over the class period; (6) the methodology can only be applied to a subset of the nurses; and (7) the methodology cannot prove impact and damages for the two named plaintiffs.

Defendants argue that Ashenfelter has “no basis to believe that there is any connection between the adjusted bill rates for agency nurses and the competitive wages of staff nurses.

Court concluded that experts are entitled to differing opinions as to the validity of the methodology, so long as the challenged methodology is grounded in reliable scientific principles and facts. Here, the expert’s testimony was based on the methodology that is well accepted economic principle and uses undisputed data, exclusion is not granted

(2) Defendant argued that the methodology does not take into the account experience (nurses bill rates vary by experience).

The court said that the Ashenfelter took into account all available data which allowed him to account differences in competitive wages based on job type. The benchmark does not account for experience because it the data is not available.

(3) Defendant argued that the methodology is premised on idea that defendants made the extensive long term use of agency nurses and he admitted that he cannot distinguish between appropriate long term agency use and inappropriate agency use” and therefore his opinions are unreliable.

Court said agency use has not effect on reliability

(4) Defendant argued that Ashenfelter’s methodology should be excluded as unreliable because the but-for wages were not credible and barely change over time.

The court concluded that Ashenfelter’s methodology is based on sound economic principles and applies undisputed facts. Defendants will have the opportunity to cross-examine Ashenfelter at trial as to the credibility of his results and the jury will be able to assign the appropriate weight to the expert’s opinions. The methodology requires a step-by-step application of undisputed pay roll information into a methodology which this Court finds to be reliable. There is no analytical gap between this application and the results found by Ashenfelter.

Economic Expert Witness Opines on Wage Fixing Scheme

The Securities and Exchange Commission filed an enforcement action against the operator of a large-scale Ponzi scheme. The hedge fund operator pleaded guilty to a multi-count indictment for securities fraud, wire fraud, mail fraud and other charges. The SEC appointed a receiver who sued numerous hedge fund investors seeking to claw back false profits under the theories of avoidance of fraudulent transfers under the state’s uniform fraudulent transfer act and unjust enrichment, scamming customers in a ripoff attempt to earn back profits.

Even using the numbers provided by the receiver that we feel are incorrect, the data shows that the hedge funds' actual trading performance from inception to 2005 was a positive of nearly $23 million, net of trading losses incurred to that date. Further, it appears that the receiver assumed that all distributions made were from profits. In fact, people who withdraw from a hedge fund receive a return of capital that is not part of a profit distribution. These different classifications of amounts distributed should be factored out when determining if distributions made were in excess of income. When all of the funds in question are totaled for profitable years from 2002 through 2005, there were trading profits of more than $40 million. When losses are included for the years that had losses, we calculated net investment trading profits in excess of $38 million. The receiver acknowledges net profits of more than $28 million for the same period. So, while our numbers may differ from the receiver, we agree that during the years in question (2000-2005) the hedge funds at issue earned a significant net profit on trades. Woefully insufficient evidence exists to support the claim that to a reasonable certainty the hedge funds operated in 1999 to 2004 were Ponzi schemes. We conclude without fear of contradiction that based on the evidence we have received to date, the manager appears to have operated a substantial underlying investment business during this period. The evidence supports a position that the entities were not a Ponzi scheme from the beginning but went through a fundamental change at some point. With specific reference to the investment club, it appears that considerable information is missing, as well as at least one brokerage account, as related to over $2.8 million of gains. It is my opinion that the investment club fund did not use new investor monies to pay past investors, as distributions were from earnings and profits and a return of capital when the additional transactions and profits are included in the analysis. The expert is a certified public accountant with more than 20 years of experience.

1. At what point were the hedge funds and managers insolvent? 2. Was the investment club at issue ever involved in a Ponzi scheme?

SEC receiver seeks to recoup false profits from hedge fund investors

: United States District Court for the Northern District of Illinois, Eastern Division 

A group of plaintiffs brought this class action lawsuit alleging that the defendant used an Indian company to place robocalls to the plaintiffs without their express consent violating the Telephone Consumer Protection Act, 47 U.S.C. § 227, 

The Indian company called on behalf of the defendant to sell a free cruise ship with a pre-recorded audio track used. The calls were transferred to the defendants for a commission on the sale.

The plaintiffs identified 983,023 unique telephone numbers that were transferred using call records obtained from the defendant’s call centers. Both parties relied on expert witnesses and moved to preclude the opinions of each other’s experts.

The plaintiff retained an expert in telecommunications expert who offered two opinions: that the calls made by the Indian company used a pre-recorded voice, and the identities and contact details of the customers contacted could be definitively and clearly identified using just the telephone numbers. He further added that doing so is fairly simple administrative work. The defendant moved to exclude both opinions.

The court noted that an expert “must testify to something more than what is ‘obvious to the layperson’ in order to be of any particular assistance to the jury,” citing Dhillon v. Crown Controls Corp., 269 F.3d 865, 871 (7th Cir. 2001) (quoting Ancho v. Pentek Corp., 157 F.3d 512, 519 (7th Cir. 1998)). The court found the expert’s opinion regarding the use of a pre-recorded voice irrelevant because what may be obvious to an expert may not be so obvious to a layperson, and that the expert opinion should assist the trier of fact in understanding that.

The court, however, noted that it need not consider whether the expert’s opinion was fairly obvious to a layperson because it accepted the defendant’s argument that his methodology was unreliable. The telecommunications expert did not do any testing of his own. He did not even listen to the recorded voice. He only relied on testimonies and statements of interested parties. Because he found many mentions of the use of “pre-recorded audio” in the supporting case documentation, he took this for uncontested fact and conducted no analysis of his own to confirm it.

The court noted that “an expert opinion that simply accepts and regurgitates facts without any testing, corroboration, or analysis is suspect and fails to satisfy Rule 702”, citing Dixon ex rel. Dixon v. Cook Cty., No. 09 C 6976, 2012 U.S. Dist. LEXIS 136644, 2012 WL 4464460, at *3 (N.D. Ill. Sept. 25, 2012) (finding that an expert who “merely state[s] a fact and then provide[s] a conclusion, without providing any analysis as to how [they] reached such a conclusion” fails to satisfy Rule 702 and the Daubert standard); also citing Lang v. Kohl’s Food Stores, 217 F.3d 919, 924 (7th Cir. 2004) (“[E]xperts’ work is admissible only to the extent it is reasoned, uses methods of the discipline and is founded on data . . . talking off the cuff—deploying neither data nor analysis—is not an acceptable methodology.”).

The court noted that the telecommunications expert’s second opinion was also unreliable. He testified that he had no knowledge of class identification and certification and that he had exclusively depended on the methodology of Class Experts Group LLC, another one of the plaintiffs’ experts with expertise in this area. While the telecommunications expert oversaw the process by which telephone numbers were identified and claimed to have a general idea of how the process functions, he accepted that he was not an expert in the area. The court noted that “to admit expert testimony, the expert must have specific, specialized knowledge of the subject matter, not a general understanding.” The court also found the expert’s methods unreliable as he had solely depended on other’s expertise to form his opinion.

The court accepted the defendant’s motion to exclude the opinions of the plaintiff’s telecommunications expert.

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Scams & Ripoffs Expert Witness Case Studies

Bank Accused of Abetting Ponzi Scheme

Lawyer Funnels Money Out of Trust Fund

Economic Expert Witness Opines on Wage Fixing Scheme

SEC receiver seeks to recoup false profits from hedge fund investors

Telecommunications Expert Excluded In TCPA Class Action For “Merely Regurgitating Facts”

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